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Virgin Atlantic Joins Bidding for British Midland

By Nicola Clark December 12, 2011 7:37 amDecember 12, 2011 7:37 am

5:40 p.m. | Updated

The German flagship airline Lufthansa confirmed on Monday that Virgin Atlantic Airways had made a bid for its British Midland International unit, competing with the parent of British Airways to secure coveted takeoff and landing slots at Heathrow Airport.

The move comes barely a month after the International Airlines Group, which owns British Airways and Iberia, announced that it had reached a preliminary agreement with Lufthansa to buy British Midland, widely known as BMI, for an undisclosed sum.

“We are now talking to both to I.A.G. and Virgin,” said Aage Dünhaupt, a spokesman for Lufthansa. “We expect those talks will continue over the next months, with hopefully a decision to be made within the first quarter of next year.”

Virgin Atlantic, which is owned by Richard Branson’s Virgin Group and Singapore Airlines, also confirmed that negotiations were under way “on the next stage of the purchase,” but did not disclose further details.

The International Airlines Group has been eager to expand its already large presence at Heathrow, agreeing to buy six takeoff and landing slots there from BMI in September. That deal increased the company’s control at the airport, Europe’s busiest, to 45 percent.

BMI, the second-largest carrier at Heathrow, controls 9 percent of the slots at the airport, which is operating at maximum capacity after plans to build a third runway were abandoned last year. Virgin Atlantic controls 3 percent of Heathrow’s slots. In a statement, Virgin said a takeover of BMI by the International Airlines Group would be “disastrous for consumer choice.”

Analysts have predicted that antitrust regulators would be unlikely to accept the group controlling more than 50 percent of Heathrow slots, so it is expected to sell some to a competitor to get the transaction approved.

It was not immediately clear whether Virgin Atlantic’s bid was still being supported by financing from Etihad Airways of Abu Dhabi, which had earlier considered a joint bid for BMI. Representatives of both airlines declined to comment on Monday.

Mr. Dünhaupt of Lufthansa said discussions were taking place with Virgin Atlantic representatives, but he added that he did not know if Etihad Airways had a role in the bid.

A report in The Times of London said Virgin Atlantic had offered about £50 million ($78.3 million) for BMI. The report, which cited unidentified bankers familiar with the transaction, said the offer was about half the value of the proposal from the International Airlines Group, as Virgin expected to confront fewer regulatory hurdles to a deal.

Both Virgin Atlantic and the International Airlines Group declined to comment on the report.

BMI has three business units: a traditional carrier serving Europe, the Middle East and Africa; BMI Regional, which serves Britain; and Bmibaby, a low-cost carrier. Neither the International Airlines Group nor Virgin Atlantic has expressed interest in either BMI Regional or Bmibaby, according to people with knowledge of the discussions.

BMI said in October that it was in “advanced discussions” to sell BMI Regional to a British investment group, which it did not identify, by the end of this year. The fate of the low-cost business remained unclear.